India fastest growing auto market in output

Production growth of 8% for the Indian automotive industry has come at a time when global automobile production itself declined for the first time in a decade, by 1.1% to about 95.6 million units.Sharmistha Mukherjee | ET Bureau | April 24, 2019, 15:08 IST

Domestic sales, thereafter, are likely to decline in the next financial year, but long-term prospects remain strong. India last year bucked the decade’s first declining trend in global auto output, logging the fastest pace of expansion among top ten production hubs, although sales locally turned a bit soft because of changes to insurance rules and increases in fuel prices through the festive season.

Production growth of 8% for the Indian automotive industry has come at a time when global automobile production itself declined for the first time in a decade, by 1.1% to about 95.6 million units.

As per data available with international organisation of automobile manufacturers OICA, automobile production (passenger and commercial vehicles) in India increased 8% to 5.17 million units last year. Brazil came next, expanding by 5.2% to 2.87 million units, albeit on a smaller base. Output in China dropped by 4.2% (to 27.80 million units), while production in the US and Japan climbed 1.1% (to 11.31 million units) and 0.4% (to 9.72 million units), respectively.

Production of passenger vehicles in India rose 2.8% to about 4.1 million units. Output of commercial vehicles jumped 34% to 1.1 million units.

“This growth in production has largely come on the back of strong sales, particularly of commercial vehicles, in the first 8-9 months of the year…Several economies the world over are in recession. India is the only major country with solid growth behind it. If not for the global slowdown, which has hit exports, the growth rate of production in the country would have been even higher,” said V G Ramakrishnan, managing partner at Avanteum Partners LLP.

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To be sure, a significant increase in insurance expenses, fuel costs and liquidity tightening after the IL&FS crisis affected demand locally in the second half of the year. Industry insiders are confident, however, that growth will revive in FY20, with customers advancing purchases ahead of the anticipated price increases on account of implementation of BS VI emission standards from April 1, 2020.

In a recent interaction, Maruti Suzuki Chairman R C Bhargava told ET: “A lot of regulations related to safety and emission norms will come in over the next few months. There is a possibility that customers may choose to buy vehicles before prices go up…I personally feel this year will be much better than the last one.” Bhargava declined to share any growth estimates but said he expects the industry to recover soon.

Domestic sales, thereafter, are likely to decline in the next financial year, but long-term prospects remain strong.

N Raja, deputy managing director (sales & marketing), Toyota Kirloskar Motor (TKM), said: “Unlike in developed economies, where new car sales are largely driven by replacement demand, a major portion of purchases in India happen on account of first-time buyers. They contribute 35-40% to new car sales, unlike in Japan where this customer set chips in with less than 10%. Given the demographics, growth potential in India should remain strong in the long term.”

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